Private-prison operator The GEO Group (GEO) saw its share price surge over the past month thanks to a sizable number of amateur retail investors taking positions in the stock based on discussions about it on Reddit forum WallStreetBets. However, given that the company is losing its federal business, which represents a significant part of its revenue, can the stock continue rallying? Let’s find out.Real estate investment trust The GEO Group, Inc. (GEO), which is based in Boca Raton, Florida, develops and finances secure facilities, processing centers, and illegal immigration detention centers in the United States, the United Kingdom, Australia, and South Africa. The company’s long-term real estate contracts, which entail essential government services, have helped the company grow across all its diversified business units. However, an executive order signed by President Biden in January resulted in non-renewal of some of GEO’s contracts related to criminal detention facilities.
GEO’s shares have declined 16.6% year-to-date and 39.4% over the past year. But the stock has gained 32.7% over the past month, with retail traders betting on the stock heavily because it is being discussed on subreddit r/wallstreetbets as a potential short-squeeze candidate. More than 35.7% of GEO’s float has been sold short.
While the activation of three of its ICE (NYSE:ICE) Annex facilities in California and its Eagle Pass Detention Facility in Texas could help it to normalize its operations, the non-renewal of federal contracts and a heavy debt load could make things difficult for GEO.